Chinese Central Bank to Stabilize Yuan

The People’s Bank of China announced Tuesday that it would provide some stability to the yuan after officials let their midpoint rate slide above 7 per U.S. dollar for the first time in over a decade. By orchestrating a fall in the yuan, China was able to convey to the world that it has plenty of ammunition to combat the U.S.-led trade war.

As Bloomberg reported, PBoC officials set the daily currency peg on the CNY stronger than analysts had expected and announced plans to sell yuan-denominated bonds in the coming weeks. Beginning August 14, the central bank will hold a sale of 30 billion yuan in Hong Kong in a move designed to lower offshore liquidity.

The yuan rose against the dollar on Tuesday. | Source: Yahoo Finance

For investors, PBoC’s actions suggest it is trying to prevent further yuan depreciation while still maintaining flexibility. It also sends a positive signal that the Chinese government is open to resuming trade negotiations.

Bilateral talks between the U.S. and China resumed last week in Shanghai. Although President Trump described the meeting as “constructive,” he criticized China for abandoning an agreement in May and said it hadn’t lived up to its promise to purchase more U.S. agricultural goods. On Thursday, Trump announced 10% duties on all remaining Chinese imports valued at $300 billion.